Schroder Income Growth Fund
plc
Half Year
Report
Schroder
Income Growth Fund plc (the "Company") hereby submits its Half Year
Report for the six months ended 29 February 2024 as required by the
Financial Conduct Authority's Disclosure Guidance and Transparency
Rule 4.2.
Ewen Cameron Watt, Chairman
of Schroder Income Growth Fund plc, commented:
"We are pleased that we were
able to deliver an increased dividend for the 28th consecutive year
for the year ended 31 August 2023, ensuring continuing AIC
'Dividend Hero' status. We remain committed to delivering portfolio
income supported, when necessary, by the use of revenue reserves to
provide growing income for our shareholders."
Key
highlights
· Interim dividend of 2.50 pence per share (2023: 2.50 pence per
share) has been declared payable on 26 April 2024.
· The
Company has grown its dividend for 28 consecutive years, since it
was launched in 1995 - a feat that has earned it a place on the
Association of Investment Companies' list of Dividend
Heroes.
· NAV per
share total returns of 1.9% (FY23: 4.2%) to 258.0p, against 3.9%
for the FTSE All-Share Index. Underperformance was a result of
adverse stock selection within three sector groups of consumer
discretionary, industrials and basic materials. This more than
offset positive positioning and stock selection in the consumer
staples area.
·
Valuations in the UK stock
market present attractive opportunities for forward returns,
particularly in the Small and Mid-Cap "SMID" area. Over the three
years leading up to February 2024, the FTSE 100 outperformed the
FTSE Small Cap Index by 25% and the FTSE250 Mid Cap Index by 31%.
Historical trends indicate that periods of underperformance have
often been followed by strong returns for SMIDs.
The Half Year Report is also being
published in hard copy format and an electronic copy of that
document will shortly be available to download from the Company's
web pages www.schroders.com/incomegrowth.
The Company has submitted a copy of
its Half Year Report to the National Storage Mechanism and it will
shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu
(Press)
|
020 7658 6000
|
Shilla
Pindoria
|
020 7658 6000
|
Half Year Report for the six months
ended 29 February 2024
CHAIRMAN'S STATEMENT
Performance
It is disappointing to report that
for the six-month period to 29 February 2024, your Company's
NAV per share total return was 1.9%, compared to 3.9% for the FTSE
All-Share Index. The share price total return was also lower than
the NAV per share total return, returning -0.3% reflecting the
widening discount from 8.9% to 11.1% over the period.
This outcome largely stems from the
particular underperformance of some specific stocks held in the
portfolio and is covered in detail in the Investment Manager's
review on pages 6 to 9.
Between 29 February 2024 to 24 April
2024 the NAV and share price have delivered total returns of 7.6%
and 6.8 % respectively, versus the return on the FTSE All-Share
Index of 5.9%.
Discount management
Your Board agrees with the principle
of buying back its shares where the market price materially
undervalues the portfolio. Your Board keeps your Company's share
price discount to NAV under close review and is committed to buying
back its shares to help manage its position. In this respect, and
post period end, your Company has bought back 38,000 shares as at
24 April 2024, to be held in treasury, for the first time since
2008. This demonstrates your Board's confidence in the fundamental
value of your Company's investments, and we will continue to buy
back shares where such action materially enhances asset value per
share.
Revenue and dividends
Your Company has paid a first
interim dividend for the year ending 31 August 2024, amounting to
2.50 pence per share (2023: 2.50 pence per share). A second
interim dividend of 2.50 pence per share (2023: 2.50 pence per
share) has been declared payable on 26 April 2024.
The income from investments received
by your Company during the first half of the year has risen by 9.2%
compared to the same period last year. This is as a result of
deliberate stock picking decisions made by your Investment Manager,
which have led to the receipt of income being more heavily weighted
to the second half of the financial year. There has also been a
clear trend of companies now considering a wider range of
strategies for returning surplus funds to shareholders, with an
increased emphasis on share buybacks over dividends. This reflects
the low absolute valuation of UK companies.
Your Company has revenue reserves of
11.4 pence per share (based on shares outstanding at the period
end) after paying the first interim dividend; equivalent to 86% of
the dividends paid last year. Such reserves are available to
support the level of dividend you receive. This ability remains a
key advantage of investment trusts over other savings
vehicles.
We are pleased that we were able to
deliver an increased dividend for the 28th consecutive year for the
year ended 31 August 2023, ensuring continuing AIC 'Dividend Hero'
status. We remain committed to delivering portfolio income
supported, when necessary, by the use of revenue reserves to
provide growing income for our shareholders.
Gearing
Your Company has in place a £30
million revolving credit facility with SMBC Bank International plc
("SMBC"), expiring in September 2024. Average gearing during the
period remained at 13.6%. This made a modest contribution, net
of financing costs, to your Company's income. As of 24 April 2024,
gearing was 13.0%.
Outlook
The underperformance against the
FTSE All-Share Index during the period under review was
concentrated on stock selection in three key sectors - consumer
discretionary, industrials and basic materials. Whilst it is
disappointing that your Company has underperformed, in the
short-term, it is important that we put this into the context of
the longer-term returns that have been generated. The current
investment team took the helm on 1 July 2011, since then the
cumulative outperformance of the FTSE All-Share Index has been 0.8%
per annum. The team's track record, spanning nearly 13 years, has
been accompanied by consistent growth in dividend per share, which
is the main aim of your Company1. It is important to
note that short-term investment returns are not as important as
longer-term returns which are less dependent on fleeting and
unpredictable factors. As your Board, we prioritise the protection
of our shareholders' interests and take a very proactive
approach, maintaining an ongoing and frequent dialogue with your
Investment Manager.
Returning to the reporting period,
the performance of UK equities, yet again masked a volatile
economic backdrop for both UK corporates and households. The Bank
of England ceased its interest rate hiking cycle in August last
year and has continued to retain a tight policy since. Unlike
last year, inflationary pressures have eased as energy, fuel prices
and goods prices have moderated. However, service and wage
inflation have remained high. There was a period at the end of the
last year where markets had anticipated interest rate cuts, however
these have now been pushed out further into 2024 and are now
expected to be more muted. Despite these challenges, the UK
economic environment is predicted to improve following the brief
recession in the latter half of 2023, with moderate GDP growth of
around 1% being projected for 2024. Key indicators such as low
unemployment, rising household disposable income, and increased
business investment all contribute to the positive outlook, while
the Bank of England is anticipated to cut interest rates to around
4.5% by the end of 2024. The markets and short-term policy decision
making are still being affected by the ongoing uncertainty
surrounding the timing of the General Election.
One example of current policy
paralysis, which is wholly relevant to you as shareholders, is the
inability of the Treasury and regulators to address the
contradictions in the application of packaged retail and
insurance-based investment products ("PRIIPs") and Consumer Duty
regulation. Although the EU regulation does not apply to any listed
investment companies in Europe, the UK has adopted a seemingly
unique application of this Europe wide regulation in counting
investment trusts as PRIIPs. In practice this means that the costs
of listed companies held in the portfolio should be accounted in
the total costs disclosed by your Company. Yet such costs are
presumably incorporated in the price at which the shares of these
companies are bought and sold. The consequent double counting of
costs, in share prices and further disclosure, makes investment
trusts appear extremely expensive investments for you as investors.
As a result we believe, this is one of the reasons that in recent
months discounts to NAV for investment trusts holding listed
securities have widened in aggregate despite rising global stock
markets.
1 The dividend history of the Company is available on the AIC
website.
It is against this backdrop that
your Company seeks to continue to deliver its investment objective
of growing dividends and delivering capital growth. While
delivering real dividend growth year on year will be challenging in
the near term, both your Investment Manager and your Board are
keenly focused on positioning the portfolio to optimise income.
Your Investment Manager has made significant changes to the
portfolio in response to the changing environment and the ongoing
oversight and experience of Sue Noffke, and her team, should give
investors some comfort.
Your Company has now paid an
increased nominal dividend for the last 28 years, throughout
multiple market cycles. It has been able to do this through stock
selection and careful management of its reserves. This prudent
management has enabled the delivery of increases in income
regardless of the economic backdrop. While there may still be a
degree of uncertainty in the economic outlook, your Company's
reserves remain healthy. Your Board will not hesitate to use these
reserves if necessary to continue to deliver on your Company's
investment mandate of raising dividends, even if such increases lag
the growth rate of inflation for now.
Ewen
Cameron Watt
Chair
26 April 2024
INVESTMENT MANAGER'S
REVIEW
The NAV total return in the
six-months to 29 February 2024 was 1.9%. This compares to 3.9%
from the FTSE All-Share Total Return Index. The share price total
return was negative at -0.3%.
Revenue after tax for your Company
increased by 4.9% versus the same period last year. Investment
income rose by 9.2% compared to the same period last year due
principally to the portfolio benefitting from movement in income
accruing to your Company's first half year, from either the prior
fiscal year or the second half of this year. A combination of
movements in ex-dividend dates, portfolio transactions and the move
to paying quarterly dividends for some portfolio holdings boosted
your Company's first half income.
Your Investment Manager observed a
wider range of dividend outcomes for portfolio companies relative
to their underlying profits compared to the past. Several portfolio
company boards have amended their capital allocation policies to
favour share buybacks over special dividends, and in some cases
increases in ordinary dividends. The low valuation of many UK
companies argues in favour of share buybacks.
Whilst some holdings posted notable
increases in dividends in the period, eight of the portfolio's
holdings held their dividend level with prior years. Of these,
seven opted to reward shareholders additionally through
a share buyback programme, indicating that their boards
believe their shares to be undervalued. Oil major Shell, Empiric
Student Properties and budget hotel company Whitbread paid notably
increased dividends. Shell did so whilst also conducting a
significant share buyback of $3.5 billion. Electricity energy
provider SSE reduced its dividend by one third as it seeks to
balance income to shareholders with the capital required to take
advantage of the many investment opportunities afforded by the
energy transition whilst maintaining a strong balance
sheet.
Market background
The interest rate hiking cycle came
to an end in the summer months of 2023; July for the US Federal
Reserve and August for the Bank of England. Central banks have
maintained tight monetary policy since then but have not needed to
raise interest rates further as inflationary pressures have begun
to abate. Goods and energy prices have moderated whilst services
and wage inflation have proved a bit stickier. Markets have
attempted to price in a pivot in Central Bank policy and may have
got ahead of themselves at the end of the calendar year 2023 in
anticipation of early and numerous interest rate cuts, which now
appear to be pushed further into 2024 and be more modest in
scale.
After confounding gloomy
expectations of weak economic growth in the first half of 2023, the
UK economy slowed in the second half, slipping into a shallow
recession with two consecutive quarters of economic contraction.
Data released for the early months of 2024 show the economy growing
again, suggesting that the recession may prove short lived. Whilst
forecasts for UK economic activity are for growth to pick up, the
level of growth is expected to remain lacklustre. UK inflation
moderated in the second half of 2023, showing the UK to be less of
an outlier compared to other developed markets than many
commentators had stated.
Markets have recovered strongly from
an early autumn sell off related to concerns over the impact of
higher interest rates and weaker Chinese economic growth. Contrary
to expectations at the beginning of 2023, the re-opening of China's
borders following the end of its zero-Covid policy, delivered
slower growth, greater price deflation and an ongoing property
crisis. There are signs that the economic environment in China is
improving but the property market, which has historically supported
GDP growth, remains a key area of concern for markets. UK equities
rose over the period, however returns were more modest than the
returns achieved in other major markets. The UK sectors most
exposed to the disappointing economic performance in China were
luxury goods, basic materials and financials. Narrowness rather
than breadth has characterised returns within other equity markets
- in the US this is most clearly represented by the outsized
returns of the so-called 'Magnificent 7' stocks.
Portfolio performance
Underperformance was a result of
adverse stock selection within three sector groups of consumer
discretionary, industrials and basic materials. This more than
offset positive positioning and stock selection in the consumer
staples area.
Five top/bottom relative performers
|
|
Weight
|
Relative
|
|
|
Portfolio
|
relative
|
perform-
|
|
|
weight1
|
to
index2
|
ance3
|
Impact
|
|
(%)
|
(%)
|
(%)
|
(%)
|
Hollywood Bowl
|
2.2
|
+2.2
|
+39.1
|
+0.7
|
Intermediate Capital
Group
|
2.0
|
+1.8
|
+40.7
|
+0.6
|
RELX
|
3.6
|
+1.1
|
+30.3
|
+0.3
|
M&G
|
2.2
|
+1.1
|
+17.6
|
+0.3
|
Reckitt Benckiser
|
0.0
|
-1.8
|
-16.3
|
+0.3
|
|
|
Weight
|
Relative
|
|
|
Portfolio
|
relative
|
perform-
|
|
|
weight1
|
to
index2
|
ance3
|
Impact
|
|
(%)
|
(%)
|
(%)
|
(%)
|
Burberry
|
2.1
|
+1.8
|
-44.4
|
-1.1
|
Pets at Home
|
2.5
|
+2.5
|
-29.7
|
-0.9
|
Rolls Royce
|
0.0
|
-1.0
|
62.1
|
-0.5
|
Drax Group
|
1.7
|
+1.7
|
-19.5
|
-0.4
|
Prudential
|
2.2
|
+1.1
|
-23.0
|
-0.3
|
Source: Schroders, FactSet, for
Schroder Income Growth investment portfolio, six months to end
February 2024.
1Average weights over the period.
2Total return of the stock relative to the FTSE All-Share TR
over the period.
3Contribution to performance relative to the FTSE All-Share TR.
The securities shown above are for illustrative purposes only and
are not to be considered a recommendation to buy or
sell.
At a sector level the main driver of
negative relative returns was stock selection in the consumer
discretionary area. Two holdings suffered particular setbacks, a
tougher market backdrop in luxury goods for Burberry and regulatory
scrutiny of the veterinary market for pet care provider Pets at
Home. Stock selection in the industrials area also detracted. Your
Company did not own the strongest performing stocks in this sector,
where aerospace and defence companies Rolls Royce and BAE Systems
rose as orderbooks strengthened with a strong post Covid recovery
in civil and defence aerospace end markets. The holding in defence
services business QinetiQ contributed positively, however its
degree of outperformance was more muted than that of its
peers.
Being overweight consumer
discretionary weighed on returns over the period. Burberry was the
single biggest detractor to performance. Global luxury sales
weakened after a strong period over the pandemic and initial
re-opening. Additionally, a change in chief designer has unsettled
customers. Both factors have hindered the company's strategy of
brand elevation with associated price increases. Also, in the
consumer facing space, retailer and veterinary business Pets at
Home, the UK's leading pet care business, was the second largest
detractor. The shares fell on news of the Competition and Markets
Authority ("CMA") announcing an initial review of the veterinary
sector in September 2023 which focused on transparency of ownership
and pricing dynamics in the vet market. In March 2024 the CMA
announced that it will be consulting with a view to launching a
full investigation into the UK vet sector noting five areas of
potential concern, which could take 18 months. We have not seen
evidence of abusive charging practices within the business and do
not expect any substantive adverse outcomes for the group's
business from the review.
Being underweight aerospace and
defence companies was detrimental to performance. Not owning Rolls
Royce, which continued its strong operational and share price
recovery from the Covid pandemic under new management with an
extensive restructuring plan, detracted from your Company's
performance. Drax, the UK's largest supplier of renewable power,
suffered from a combination of weaker power prices from the highs
of 2022, regulatory overhangs related to biomass subsidies and
sustainability reporting, and governmental delays to their carbon
capture and storage project. Prudential was affected by the same
China macroeconomic concerns that caused your Company's holdings in
Burberry, Standard Chartered and Anglo American to
underperform.
Your Company's underweight
positioning and stock selection in the consumer staples area was
positive for portfolio performance. Companies in this area
experienced an unwind of the pandemic boost to volumes of household
goods, cigarettes and alcohol. Not owning Reckitt Benckiser,
British American Tobacco and being underweight Diageo, all of which
underperformed in an environment of higher interest rates and
higher inflation, was positive. Stock selection was also positive
in the financial sector, particularly in asset managers. Stock
selection in healthcare, contributed positively, principally
through your Company's large position in GSK which rose on stronger
operational performance and receding fears associated with US
litigation on historic sales of gastrointestinal medicine,
Zantac.
Despite our overweight position in
the consumer discretionary sector companies being negative over the
period, two companies were amongst the biggest contributors to
performance. Hollywood Bowl was the largest contributor to
portfolio performance in the period. The group is the UK's
established market leader with national scale, and the second
largest operator of ten-pin bowling centres in the world. The
shares re-rated from the low levels at the start of the period for
three reasons. Firstly, the business continued to perform strongly
following the impact of closure from the pandemic as it offers
consumers a value for money leisure experience. Secondly, the
acquisition of peer Ten Entertainment Group underpinned the
attractiveness of the industry, and Hollywood Bowl. Thirdly, the
promotion of the stock from the Smaller Companies Index to the FTSE
250 Index at the end of the period boosted interest in the shares.
RELX, a global provider of information-based analytics and decision
tool for professional and business customers, performed strongly
over the course of the period. The company's historic investment in
AI and market leading technologies and digital tools accelerated
growth across its various business segments of risk, scientific,
technical and medical, legal and exhibitions. Not owning health and
personal care company Reckitt Benckiser also benefitted your
Company.
Being overweight financials was
positive with asset managers Intermediate Capital Group, M&G
and 3i Group all outperforming. Intermediate Capital Group, a
private assets business, traded strongly, particularly in its debt
funds, while returns on the investment company improved after a
more challenging period in the previous year. 3i Group, another
private asset company, performed well. 3i Group's largest asset is
European discount retailer Action, which continued to benefit from
consumers choosing cheaper options to offset cost of living
pressures and higher mortgage costs. Action has an attractive
pipeline of store rollouts which should further enhance growth.
M&G has benefited from the diversified nature of its
businesses, which has enabled the group to seed new strategies to
drive inflows whilst also rewarding shareholders with an attractive
dividend. The shares have been very lowly valued and as the market
has reappraised the risks to the investment case, the shares have
delivered robust performance in total return terms.
Portfolio activity
During the period your Investment
Manager sold out of three positions and added four new
holdings.
Your Company exited its longstanding
holding in Tesco. The shares had performed strongly during Covid
and the subsequent inflationary period, as well as benefitting from
consolidation within the supermarket sector. Your Investment
Manager believes balancing the interests of all stakeholders -
staff, customers, suppliers as well as shareholders - will continue
to be challenging. Despite the take-private transactions and
associated higher leverage of peers, ASDA and WM Morrison, the food
retail industry remains highly competitive. Your Company exited its
holding in mid-cap precision instrumentation and controls company
Spectris, where after modest outperformance your Investment
Manager's conviction in its strategy has waned and views better
opportunities elsewhere.
Paypoint's recent acquisition of
Love2Shop aims to diversify the business away from the group's
slower growing legacy businesses, but your Investment Manager's
view is that this brings greater regulatory scrutiny and risks. As
a result, your Company exited the position during the period.
Proceeds of these sales were used to initiate a new position in
British multinational beverage company Diageo. Over the past
three years the shares have underperformed due to higher
inflation and interest rates which created headwinds to sales
growth and valuation. Your Investment Manager believes that the
de-rating of the shares, which now trade at the lowest price
earnings multiple in almost 10 years, has created an opportunity to
initiate a modest position.
Your Company created a new position
in global automotive distributor Inchcape, which is taking share in
the automotive market from independents who are struggling with
debt and increasingly onerous demands from automotive
manufacturers. Inchcape is the leader in its markets, generates
attractive returns on capital, has a long growth runway and
your Investment Manager believes the shares are mispriced because
the market underappreciates the resilience and quality of this
business.
Another new holding is international
med-tech business Smith and Nephew. The valuation of the shares has
compressed, relative to the company's own history and to
international peers, while the outlook has improved. Sales growth
has recently accelerated, positive operational leverage and cost
benefits from restructuring programmes should boost margins and
profitability and lead to an improved valuation.
Property company British Land, whose
shares trade at a material discount to NAV, was added to the
portfolio during the period. It has a well invested portfolio in
diverse, high quality business segments, including retail and
office space, that are well located and your Investment Manager
sees good prospects for occupancy and rental growth in the future,
as well as expecting the shares to benefit as interest rates fall
later in 2024.
Further portfolio activity saw your
Company add to existing holdings on share price weakness. Your
Investment Manager has increased conviction in the longer-term
strategies of defence services business, QinetiQ, pet product and
services provider, Pets at Home and power company, Drax.
Conversely, profits have been taken in some well performing
positions, including information company RELX, asset managers 3i
and Intermediate Capital and global education company
Pearson.
Outlook
In financial markets the mood is
buoyant with stocks in the US, Eurozone and Japan at record highs.
A soft economic landing looks increasingly likely as consumer
demand remains resilient, particularly in the US, and headline
inflation has fallen significantly, although it is likely to remain
above central bank targets. Labour markets have started to soften
but are expected to remain tight for a while. This is likely
to result in sticky inflation. While this may delay interest rate
cuts, central banks appear increasingly comfortable with cutting
rates ahead of inflation returning to target. The US Federal
Reserve, Bank of England and European Central Banks have all
recently signalled that they are on track to cut rates this year.
Markets are anticipating the start of cuts in the summer. This a
key driver of the current positive global market sentiment. A
setback to this path could cause disappointment.
The UK experienced a shallow
recession in the second half of 2023, but there are signs of
economic activity gradually resuming in 2024, albeit at a slow
pace. It is worth noting that UK inflation is not an outlier
compared to other major developed markets, and it is expected to
decline towards the Bank of England's 2% target, especially as
energy costs drop out of the comparisons. On a global scale, it is
important to note that there will be significant elections this
year, including the US presidential election in November and
a likely UK general election in the second half of 2024. While
political risk is a factor to consider, the main parties have
mostly shifted towards the centre.
In the UK equity market, there
remains a noticeable disconnect between company fundamentals and
valuations. Among the 23 industry sectors, only one UK sector
trades at a higher multiple compared to its US equivalent, while
the majority trade at a discount of 25% or more1. This
dislocation has been recognised by overseas corporates and private
equity buyers, who have begun to take advantage of the situation.
For example, in 2023, there were over 40 transactions of value
over £100 million announced with bid premia averaging over
50%2. This scale of bid premium highlights how far below
intrinsic value the shares of these companies were trading. While
this activity has primarily focused on smaller companies, there has
been an increase in activity within larger companies in 2024 as
well as all-equity mergers taking place, particularly in the
housebuilding and paper and packaging sectors. This trend will no
doubt continue as long as valuations remain compelling.
Valuations in the UK stock market
present attractive opportunities for forward returns, particularly
in the Small and Mid-Cap ("SMID") area. Over the three years
leading up to February 2024, the FTSE 100 outperformed the FTSE
Small-Cap Index by 25% and the FTSE 250 Mid-Cap Index by 31%.
Historical trends indicate that periods of underperformance have
often been followed by strong returns for SMIDs. The FTSE 250 Mid
Cap Index, in particular, has outperformed the S&P 500 Index in
local currency terms since 2000.
The contribution from one-off
special dividends for your Company and for the market has declined
markedly in the past two years following a particularly strong
period for special dividends influenced by two key aspects: the
surge in profitability of the mining sector from 2020 to 2022,
considered by companies to be "super normal", as well as the
catch-up effect from the pandemic for a range of other companies.
Special dividends have typically featured more heavily in the
fund's second half than the first. In this period the fund received
a special dividend from Hollywood Bowl, a company that has
historically been a consistent payer of special dividends. The
special this year was lower than last time but was accompanied by a
return of capital via a share buyback.
1 Schroders analysis. Forward price/earnings multiples for
industry groups in MSCI UK and MSCI USA. As at 31 January 2024.
Data sourced from LSEG Datastream.
2 Peel Hunt, 'Shifts in the UK equity market landscape', April
2024.
As your Investment Manager commented
in the 2023 annual report and accounts, UK companies are looking to
take advantage of, and trying to address, their lowly valuations.
In both 2022 and 2023, FTSE 100 companies returned over
£55 billion to investors through share buybacks, significantly
above the highest previous level of circa. £34 billion in
20181. Several large companies have embarked on major
buyback programmes, cancelling their shares after purchase.
Companies who feel that their share price does not reflect the true
value of the company are especially keen on share buybacks to
enhance earnings per share which should, all other things equal,
boost the share price. In the context of the circa. £2 trillion
market capitalisation of the FTSE 100, it implies an over 2.5%
reduction in shares outstanding per year. In both 2022 and 2023,
the proportion of UK large companies that bought back 1% or more of
their shares each year matched the USA. Increasingly we observe
that mid cap companies are also pivoting to share buybacks in
preference of, or in addition to, ordinary dividend increases. Of
your Company's eight holdings which withheld dividend payments
during the reporting period, seven are conducting share
buybacks.
Dividend income for the UK market,
forecast for the calendar year 2024 by Computershare, is for growth
to slow to around 2% on an underlying basis. Taking account of
special dividends, which are expected to continue to trend lower,
total income is forecast to fall.
Your Investment Manager remains a
bottom-up stock picker looking for idiosyncratic investment
opportunities in individual companies. Regardless of external
conditions, your Investment Manager's investment approach remains
constant: to construct a diversified portfolio of mispriced
opportunities capable of delivering both real growth of income and
attractive capital returns.
Schroder Investment Management Limited
26 April 2024
1 Computershare Q4 2023 UK Dividend Monitor.
INTERIM MANAGEMENT REPORT
Principal risks and uncertainties
The principal risks and
uncertainties with the Company's business fall into the following
risk categories: strategic; investment management; economic and
market; custody; gearing; accounting, legal and regulatory; service
provider; cyber; and ESG and climate change. A detailed explanation
of the risks and uncertainties in each of these categories can be
found on pages 24 to 26 of the Company's published annual report
and accounts for the year ended 31 August 2023.
The Company's principal risks and
uncertainties have not materially changed during the six months
ended 29 February 2024.
Going concern
Having assessed the principal risks
and uncertainties, and the other matters discussed in connection
with the viability statement as set out on page 27 of the published
annual report and accounts for the year ended 31 August 2023, the
Directors consider it appropriate to adopt the going concern basis
in preparing the financial statements.
Related party transactions
There have been no transactions with
related parties that have materially affected the financial
position or the performance of the Company during the six months
ended 29 February 2024.
Directors' responsibility statement
In respect of the half year report
for the six months ended 29 February 2024, the Directors
confirm that, to the best of their knowledge:
- the condensed set of
Financial Statements contained within have been prepared in
accordance with the United Kingdom Generally Accepted Accounting
Practice in particular with Financial Reporting Standard 104
"Interim Financial Reporting" and with the statement of Recommended
Practice, "Financial Statements of Investment Companies and Venture
Capital Trusts" issued in July 2022 and give a true and fair view
of the assets, liabilities, financial position and profit and loss
of the Company as at 29 February 2024, as required by the
Disclosure Guidance and Transparency Rule 4.2.4R; and
- the half year report
includes a fair review of the information as required by the
Disclosure Guidance and Transparency Rules 4.2.7R and
4.2.8R.
Ewen
Cameron Watt
Chair
For and on behalf of the
Board
26 April 2024
STATEMENT OF COMPREHENSIVE
INCOME
for the six months ended 29 February
2024 (unaudited)
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
For the six
months
|
For the six
months
|
For the
year
|
|
|
ended 29 February
2024
|
ended 28 February
2023
|
ended 31 August
2023
|
|
Note
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains on investments held at
fair
|
|
|
|
|
|
|
|
|
|
|
value through profit or
loss
|
|
-
|
2,500
|
2,500
|
-
|
19,626
|
19,626
|
-
|
326
|
326
|
Net foreign currency
losses
|
|
-
|
23
|
23
|
-
|
-
|
-
|
-
|
-
|
-
|
Income from investments
|
|
2,995
|
-
|
2,995
|
2,743
|
-
|
2,743
|
10,560
|
-
|
10,560
|
Other interest receivable
and
|
|
|
|
|
|
|
|
|
|
|
similar income
|
|
-
|
-
|
-
|
-
|
-
|
-
|
90
|
-
|
90
|
Gross return
|
|
2,995
|
2,523
|
5,518
|
2,743
|
19,626
|
22,369
|
10,650
|
326
|
10,976
|
Management fee
|
|
(205)
|
(307)
|
(512)
|
(214)
|
(322)
|
(536)
|
(422)
|
(633)
|
(1,055)
|
Administrative expenses
|
|
(282)
|
-
|
(282)
|
(281)
|
-
|
(281)
|
(552)
|
-
|
(552)
|
Net
return/(loss) before finance
|
|
|
|
|
|
|
|
|
|
|
costs and taxation
|
|
2,508
|
2,216
|
4,724
|
2,248
|
19,304
|
21,552
|
9,676
|
(307)
|
9,369
|
Finance costs
|
|
(385)
|
(578)
|
(963)
|
(224)
|
(336)
|
(560)
|
(546)
|
(821)
|
(1,367)
|
Net
return/(loss) before taxation
|
|
2,123
|
1,638
|
3,761
|
2,024
|
18,968
|
20,992
|
9,130
|
(1,128)
|
8,002
|
Taxation
|
3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Net
return/(loss) after taxation
|
|
2,123
|
1,638
|
3,761
|
2,024
|
18,968
|
20,992
|
9,130
|
(1,128)
|
8,002
|
Return/(loss) per share (pence)
|
4
|
3.06
|
2.36
|
5.42
|
2.91
|
27.31
|
30.22
|
13.14
|
(1.62)
|
11.52
|
|
|
|
|
|
|
|
|
|
|
| |
The "Total" column of this statement
is the profit and loss account of the Company. The "Revenue" and
"Capital" columns represent supplementary information prepared
under guidance issued by The Association of Investment Companies.
The Company has no other items of other comprehensive income, and
therefore the net return/(loss) after taxation is also the total
comprehensive income for the period.
All revenue and capital items in the
above statement derive from continuing operations. No operations
were acquired or discontinued in the period.
STATEMENT OF CHANGES IN
EQUITY
for the six months ended 29 February
2024 (unaudited)
|
|
Called-up
|
|
Capital
|
Warrant
|
Share
|
|
|
|
|
Note
|
share
|
Share
|
redemption
|
exercise
|
purchase
|
Capital
|
Revenue
|
|
|
|
capital
|
premium
|
reserve
|
reserve
|
reserve
|
reserves
|
reserve
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
At 31 August 2023
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
137,112
|
11,882
|
203,932
|
Net return after taxation
|
|
-
|
-
|
-
|
-
|
-
|
1,638
|
2,123
|
3,761
|
Dividends paid in the
period
|
5
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,113)
|
(6,113)
|
At
29 February 2024
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
138,750
|
7,892
|
201,580
|
for the six months ended 28 February
2023 (unaudited)
|
|
|
Called-up
|
|
Capital
|
Warrant
|
Share
|
|
|
|
|
Note
|
share
|
Share
|
redemption
|
exercise
|
purchase
|
Capital
|
Revenue
|
|
|
|
capital
|
premium
|
reserve
|
reserve
|
reserve
|
reserves
|
reserve
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
At 31 August 2022
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
138,240
|
11,922
|
205,100
|
Net return after taxation
|
|
-
|
-
|
-
|
-
|
-
|
18,968
|
2,024
|
20,992
|
Dividends paid in the
period
|
5
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,696)
|
(5,696)
|
At
28 February 2023
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
157,208
|
8,250
|
220,396
|
for the year ended 31 August 2023
(audited)
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
Called- up share
capital
|
Share
premium
|
Capital
redemption
reserve
|
Warrant exercise
reserve
|
Share purchase
reserve
|
Capital
reserves
|
Revenue
reserve
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
At 31 August 2022
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
138,240
|
11,922
|
205,100
|
Net (loss)/return after
taxation
|
|
-
|
-
|
-
|
-
|
-
|
(1,128)
|
9,130
|
8,002
|
Dividends paid in the
year
|
5
|
-
|
-
|
-
|
-
|
-
|
-
|
(9,170)
|
(9,170)
|
At
31 August 2023
|
|
6,946
|
9,449
|
2,011
|
1,596
|
34,936
|
137,112
|
11,882
|
203,932
|
STATEMENT OF FINANCIAL
POSITION
as at 29 February 2024
(unaudited)
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
Note
|
29 February
|
28 February
|
31 August
|
|
|
2024
|
2023
|
2023
|
|
|
£'000
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
|
Investments held at fair value
through profit or loss
|
|
229,062
|
247,420
|
229,714
|
Current assets
|
|
|
|
|
Debtors
|
|
755
|
839
|
2,557
|
Cash at bank and in hand
|
|
2,492
|
2,830
|
1,560
|
|
|
3,247
|
3,669
|
4,117
|
Current liabilities
|
|
|
|
|
Creditors: amounts falling due
within one year
|
6
|
(30,729)
|
(30,693)
|
(29,899)
|
Net
current liabilities
|
|
(27,482)
|
(27,024)
|
(25,782)
|
Net
assets
|
|
201,580
|
220,396
|
203,932
|
Capital and reserves
|
|
|
|
|
Called-up share capital
|
7
|
6,946
|
6,946
|
6,946
|
Share premium
|
|
9,449
|
9,449
|
9,449
|
Capital redemption
reserve
|
|
2,011
|
2,011
|
2,011
|
Warrant exercise reserve
|
|
1,596
|
1,596
|
1,596
|
Share purchase reserve
|
|
34,936
|
34,936
|
34,936
|
Capital reserves
|
|
138,750
|
157,208
|
137,112
|
Revenue reserve
|
|
7,892
|
8,250
|
11,882
|
Total equity shareholders' funds
|
|
201,580
|
220,396
|
203,932
|
Net
asset value per share (pence)
|
8
|
290.20
|
317.28
|
293.58
|
Registered in England and Wales as a
public company limited by shares.
Company registration number:
03008494
NOTES TO THE FINANCIAL
STATEMENTS
1.
Financial Statements
The information contained within the
financial statements in this half year report has not been audited
or reviewed by the Company's auditor.
The figures and financial
information for the year ended 31 August 2023 are extracted from
the latest published financial statements of the Company and do not
constitute statutory accounts for that year. Those financial
statements have been delivered to the Registrar of Companies and
included the report of the auditor which was unqualified and did
not contain a statement under either section 498(2) or 498(3) of
the Companies Act 2006.
2. Accounting
policies
Basis of accounting
The financial statements have been
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, in particular with Financial Reporting
Standard 104 "Interim Financial Reporting" and with the Statement
of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" issued by the Association of
Investment Companies in July 2022.
All of the Company's operations are
of a continuing nature.
The accounting policies applied to
these financial statements are consistent with those applied in the
financial statements for the year ended 31 August
2023.
3.
Taxation
The Company's effective corporation
tax rate is nil, as deductible expenses exceed taxable income.
Taxation on ordinary activities comprises irrecoverable overseas
withholding tax.
4.
Return/(loss) per share
|
(Unaudited)
For the six
|
(Unaudited)
For the six
|
(Audited)
For the
|
|
months
ended
|
months
ended
|
year ended
|
|
29 February
|
28 February
|
31 August
|
|
2024
|
2023
|
2023
|
|
£'000
|
£'000
|
£'000
|
Revenue return
|
2,123
|
2,024
|
9,130
|
Capital return/(loss)
|
1,638
|
18,968
|
(1,128)
|
Total return
|
3,761
|
20,992
|
8,002
|
Weighted average number of shares in
issue during the period
|
69,463,343
|
69,463,343
|
69,463,343
|
Revenue return per share
(pence)
|
3.06
|
2.91
|
13.14
|
Capital return/(loss) per share
(pence)
|
2.36
|
27.31
|
(1.62)
|
Total return per share (pence)
|
5.42
|
30.22
|
11.52
|
5. Dividends
paid
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
For the six
|
For the six
|
For the
|
|
months
ended
|
months
ended
|
year ended
|
|
29 February
|
28 February
|
31 August
|
|
2024
|
2023
|
2023
|
|
£'000
|
£'000
|
£'000
|
2023 fourth interim dividend of 6.3p
(2023: 5.7p)
|
4,376
|
3,959
|
3,959
|
First interim dividend of 2.5p
(2023: 2.5p)
|
1,737
|
1,737
|
1,737
|
Second interim dividend of
2.5p
|
-
|
-
|
1,737
|
Third interim dividend of
2.5p
|
-
|
-
|
1,737
|
|
6,113
|
5,696
|
9,170
|
A second interim dividend of 2.5p
(2023: 2.5p) per share, amounting to £1,737,000 (2023: £1,737,000)
has been declared payable in respect of the year ending 31 August
2024.
6. Creditors:
amounts falling due within one year
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
At 29
February
|
At 28
February
|
At 31
August
|
|
2024
|
2023
|
2023
|
|
£'000
|
£'000
|
£'000
|
Other creditors and
accruals
|
729
|
1,193
|
399
|
Bank loan
|
30,000
|
29,500
|
29,500
|
|
30,729
|
30,693
|
29,899
|
The bank loan comprises £30million
(31 August 2023: £29.5 million, 28 February 2023: £29.5 million)
drawn down on the Company's revolving credit facility with SMBC
Bank International plc. The facility was extended to 23 September
2024.
7. Called-up
share capital
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
At 29
February
|
At 28
February
|
At 31
August
|
|
2024
|
2023
|
2023
|
|
£'000
|
£'000
|
£'000
|
69,463,343 ordinary shares of 10p
each
|
6,946
|
6,946
|
6,946
|
There were no changes to called up
share capital during the period (period ended 28 February 2023 and
year ended 31 August 2023: nil).
8.
Net asset value per share
Net asset value per share is
calculated by dividing shareholders' funds by the number of shares
in issue at 29 February 2024 of 69,463,343 (28 February 2023 and 31
August 2023: 69,463,343).
9. Financial
instruments measured at fair value
The Company's financial instruments
that are held at fair value comprise its investment portfolio. At
29 February 2024, all investments in the Company's portfolio were
categorised as Level 1 in accordance with the criteria set out in
paragraph 34.22 (amended) of FRS 102. That is, they are all valued
using unadjusted quoted prices in active markets for identical
assets (28 February 2023 and 31 August 2023: all valued using
unadjusted quoted prices in active markets for identical
assets).
10. Events after the
interim period that have not been reflected in the financial
statements for the interim
period
The Directors have evaluated the
period since the interim date and have not noted any other events
which have not been reflected in the financial
statements.